Australia is often referred to as the lucky country, and it seems there is some truth to this. Despite global turmoil for most of 2022, the majority of Australian manufacturers have fared relatively well.
There has been a slight shift towards local manufacturing, which has made a positive impact, and a low Australian dollar has forced suppliers to look closer to home as imported products become more costly. There are always exceptions, of course. For anyone involved in new car production, 2022 has been a struggle.
At the time of writing, the Australian Performance of Manufacturing Index indicates broadly stable conditions, although it is trending down, which is something to watch. As manufacturers welcome in the new year, they’ll face not only challenges that exist today but also some new ones. How they get through these could largely depend on the industries they serve.
Below are the five that I believe are the ones to watch out for.
Most manufacturing companies we work with are managing cost increases. Many have been able to either absorb the costs or pass them on, even as headline inflation hit 7.3% in September 2022.
However, it starts to matter when rising costs pile on top of one another. If you add more expensive raw materials to higher energy prices and wage increases, it becomes a problem. Then if you supply to a retailer who refuses to pay more, it can have a bigger impact.
I anticipate that in 2023 most manufacturers will be able to manage these costs. Still, a perfect storm of persistent increases across the board could harm the bottom line for some.
It has been a struggle to hire workers across all types of roles within manufacturing this year. In fact, we’ve seen shortages not seen since 2007. We’ve had clients unable to get their product on the supermarket shelves simply because there has been no one to produce the item in the factory.
The gap in production lines has been caused by a couple of factors:
Many of our clients have staff who’ve been there for either decades or a year or two. With not many in between.
With unrestricted travel and the government reducing visa backlogs, I expect 2023 will see both skilled and unskilled resources increase again, although not to pre-COVID-19 levels. I’d also expect more manufacturers to use automation to solve some of their labour challenges.
Compared to last year, the supply chain situation is better. But we are still far removed from the just-in-time inventory days of pre-pandemic. With China closing its factories off and on since the start of COVID-19, manufacturers have turned to dual sourcing, which has put many in a more favourable position than they were two years ago.
An issue I expect to carry into 2023 is the difficulty in sourcing a shipping container, especially for New Zealand and Fiji manufacturers. If you are lucky enough to get a container, the cost is significantly higher than it was three years ago. There is no getting around the fact that supply chain issues have increased costs considerably for manufacturers. It will take a while before reliability and confidence improve.
From raging bushfires to once-in-a-generation flooding, this is one area where Australia has not been so lucky. Yet, the impacts of extreme weather events on manufacturing have been relatively small due to it being largely dependent on location.
We have seen some food and beverage clients affected by the recent floods in NSW, and supply constraints mean they’ve had to decide what to produce based on what they can get. Not an ideal scenario for any manufacturer, but a more common experience post-COVID-19.
Whether or not Australia goes into a formal recession in 2023 remains to be seen. We can look at how manufacturers have coped with previous recessions. Manufacturing held up well during the GFC, post-9/11, and throughout COVID-19.
When times are tough, we see two different responses in our client base. Those that postpone all improvement projects to save money, and those that double down on those projects. Those who believe “times are tough; we need to do something”, usually come out much stronger.
A rise in unemployment should mean wages become cheaper and could help ease the labour shortage. I anticipate it could be another challenging year for those involved in the new car industry, and as always, there will be those that suffer. But I hope the majority will come out the other side relatively unscathed.
As manufacturers face another year of uncertainty, my view is that we should never waste a good crisis. Manufacturing still has plenty of untapped potential to improve efficiency.
Whether through automation, technology such as Electronic Data Interchange (EDI) or process improvement, businesses shouldn’t wait to be pushed. Gaining efficiencies before the tough times hit could help them better manage any instability ahead.